The Pharma sector has boomed. It is not difficult to guess why. It’s because of the ripples of the COVID-19 pandemic. The NIFTY Pharma happened to move sideways around the new year until March 2020, when the stock price fell for a short period. The NIFTY Pharma Index captures the performance of the pharma sector. This was because of the global economic slowdown. Moreover, indecisiveness on part of leaders to declare a lockdown in their country made the incident even more uncertain for the Pharma sector.

Nevertheless, the pharmaceutical market managed to meet the sudden peak in the demand for PPE Kits, Drugs, Safety Kits, Masks, Sanitizers and the paramount need to find a cure or a vaccine for it.

Investors, promoters, philanthropists, institutions and governments infused huge amount of funds into these Pharmas for R&D and mass production of safety kits.

The NIFTY Pharma stocks performed as given below:

Captured on TradingView.

The chart shows the percentage return between the start of lock-down in India i.e. 23-03-2020 and 21-07-2020(DD-MM-YYYY). It shows NIFTY Pharma performance in the topmost frame and the top four pharma stocks(by market cap) in the frame below it. On the right is the percentage return in various colour schemes.

It was such that when the entire market fell Pharma came to rise. The following is the price action for 6 months comparing NIFTY and NIFTY PHARMA. As the confirmation for a COVID vaccine is nears you can expect a highly bullish sentiment on Pharma.

Following are the top 5 performers by

Stock %Change in last 3 months Net Profit Qtr Growth YoY %Net Profit QoQ Growth %
Aurobindo Pharma Ltd. 24.18%
Biocon Ltd.19.41%
Cipla Ltd.11.86%
Cadila Healthcare Ltd.6.00% -13.71%
Lupin Ltd.4.82%32.35%146.39%

You can obtain more fundamental data regarding the stocks given above by clicking here

What can be deduced from the above table(TABLE 1)?

  • Lupin recorded the highest Net Profit Qtr Growth QoQ
  • Whereas, Aurobindo pharma recorded the highest % change in price in the last 3 months. Additionally, it also recorded the highest Net Profit Qtr Growth YoY %

It can be seen that the pharma as a sector overall hasn’t performed well on a YoY basis in terms of profit generation and revenue generation. This could be temporary, yet a very long-lived bubble which was inflated due to uncertainty and volatility in the market surrounded by COVID.

CIPLA rallied when it was announced that it was going to launch its own version of the COVID drug Remdesivir along with its competitor Mylan(Not listed in India).

What are the challenges faced by Pharma?

According to Charu Sehgal, Partner and Leader, Lifesciences and Healthcare, Deloitte India, in an interview with Economic Times, the the industry faces the following issue

  1. Manufacturing units/warehouses not working at full utilisation, due to unavailability of staff.
  2. Non-Availability or disrupted supply of raw materials and packing materials.
  3. Absence of seamless internet data connectivity with staff is creating issues in day to day work.
  4. The marketing staff of pharma companies are having problems generating sales due to lack of logistics and communication channels since they are not able to conduct meetings in-person.
  5. The companies that have operations across the globe are facing issues concerning their operations and staff in those locations. Every country has devised its policies and guidelines.
  6. As with all industries, implementing effective and robust cybersecurity measures is a challenge in the work from home scenario.

What do I take from here?

  1. It is evident that the only entity keeping the pharma market afloat is the COVID-19 Pandemic.
  2. India’s active pharmaceutical ingredient (API) industry is expected to generate $6 billion in revenues by the end of 2020.
  3. India has been meeting more than 20 per cent of the world and almost 50 per cent of the US’s generic drug requirements.
  4. India relies heavily on China for Pharma raw materials, this is about to change after political tensions have given rise to “Aatmanirbhar Bharat” and “Make In India”.
  5. The only major shortfall for the Indian Pharma Market is SCM or Supply Chain Management. Watch out for transport and logistics stocks.
  6. China has been losing credibility and momentum in the global market due to its lack of transparency about the COVID situation in the country.
  7. The Physicians and other doctors were closed so far.The number of surgeries and demand for surgical instruments had reduced. As these avenues open up and the need for other drugs and instrument rises the dependency of Pharma market on COVID shall decrease.
  8. According to Research and Advisory firm Firm Nirmal Bang: In the US, there is a sharp drop in patients visiting physicians, especially in the ophthalmology and dermatology categories, which should have an adverse impact on Sun Pharma and Glenmark
  9. There was also a substantial decline in hospitalization (non-COVID patients), which should affect injectable sales of Aurobindo Pharma and Dr Reddy’s.

Finally, The demand has slumped since clinics all around the country remain slumped, yet the Pharma Benchmark continues to rise. Once a conclusive vaccine is found and till the time it doesn’t saturate the market you can expect quite some price action.